Andy Burnham has said he accepts Rachel Reeves’ fiscal rules. But he got into a bit of a pickle during an interview with Victoria Derbyshire on the BBC’s Newsnight programme this week, when she asked him to explain what they were.
What Andy ought to have said is that he rejects the fiscal rules because they are an absurdity and will make it impossible to deviate from the neoliberal path on which the current government is travelling.
For the avoidance of doubt, the fiscal rules stipulate that:
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day-to-day government spending must be fully matched by tax revenues, and the government’s current budget must be in surplus within the next three years;
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the so-called public sector net financial liabilities (85% of which is the sale of interest-bearing government bonds, also known as gilts) must also be falling as a share of GDP by 2029.
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expenditure on certain social security benefits must be capped.
None of this makes any economic sense. For a start, since the end of WW2, the government has only recorded a budget surplus eight times, from 1948 to 1951 and from 1998 to 2001. In fact, according to the Office of Budget Responsibility, British governments have run budget deficits for 224 years out of the last 300. Furthermore, capping social security is not only cruel and inhuman, but also economically stupid, because an increase in welfare benefits will be spent in the local economy, thereby driving economic growth.
So, by accepting the chancellor’s preposterous fiscal rules, Andy Burnham will be unable to make good on his criticisms of market-led policies. In the same Newsnight interview, he was also at pains to stress that he was not going to ignore the bond market, as if the bond market is some sort of holy grail.
He ought to be arguing that the government’s focus should be on identifying and building real resources in the country to make the economy more resilient in the face of global crises. There is an underlying contradiction in Andy’s rhetoric about criticising market solutions on the one hand, and surrendering to the bond market on the other. Not least because the bond market is actually reliant on the government, rather than the other way round. The government must collect taxes to control inflation, and it uses the bond market for the same purpose, because taxation and bond sales remove liquidity from circulation. But neither taxation, nor bond sales are used to pay for government expenditure.
Andy says the country has been on the wrong path for 40 years, but he won’t be able to get it back on track if he’s going to tie his hands behind his back. The problems that Britain is facing, like the housing crisis, youth unemployment and our dilapidated infrastructure, won’t be tackled by more tinkering. These challenges require fundamental reform, which means Rachel Reeves’ foolish fiscal rules will have to go.
Andy Burnham should be arguing for a huge fiscal stimulus and tax reform to bring about a fundamental and irreversible shift in the balance of power and wealth in favour of working people and their families. That was the commitment that Labour gave in its 1974 manifesto, which was abandoned after Harold Wilson stepped down as prime minister in 1976. Less than six months later, Denis Healey went cap in hand to the International Monetary Fund on a false premise. It was Healey’s fateful and wholly misguided decision that paved the way for Margaret Thatcher and sent us down the path that Andy Burnham now says he wants to deviate from.
Of course, the neoliberal establishment want to maintain the economic status quo which has seen them get filthy rich, while millions of British citizens have been simultaneously plunged into poverty and precarious employment. Fifty years ago, precarious employment hardly existed, and poverty was considerably lower. Back then, around 8 million people worked in manufacturing and the UK was the world’s third biggest economy. But thanks to the neoliberal path we’ve been following for nearly half a century, almost six million manufacturing jobs have been offshored since 1976, and the size of the UK’s economy has slipped from third to fifth place on the world stage.
But last month, Rachel Reeves claimed that the government had the right economic plan because the UK had overtaken India and was now the world’s fifth biggest economy. But that begs the question that if the UK is the world’s fifth biggest economy, why are we enduring an ongoing cost of living crisis? Why are our public services in meltdown? And why is our infrastructure in such an appalling state of disrepair?
The answer is fifty years of neoliberalism. But it doesn’t have to be this way. We have the ability to create a good society. The only thing that is lacking is the political will to make it happen. The kind of political will that was apparent in the Labour Party’s 1974 manifesto. But I’m afraid that Andy Burnham does not seem to possess that political will. His unwillingness to challenge the fiscal rules or upset the bond market will leave those who are looking to him to turn the page on New Labour sorely disappointed.
What Andy Burnham doesn’t seem to understand is that a government that issues the currency can never run out of money, and is not reliant on the bond market either. Back in 2015 he even apologised because he said the previous Labour government had spent too much and allowed the deficit to get too high. None of this bodes well for a potential Burnham-led Labour government later this year.
We therefore need to work on raising political consciousness to build the public’s expectations that a fairer, more equitable economy is possible. Andy Burnham once described Tony Benn as a champion of the powerless who was a politician of deep principle and integrity. He would therefore do well to remember that Tony Benn said, “If you can find the money to kill people you can find the money to help people.” If he doesn’t, and if he does become our next prime minister, he will end up being little better than Sir Keir Starmer who he fought so hard to replace.
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